Welcome to the NICE Conference Call discussing Third Quarter 2024 Results, and thank you all for holding. All participants are at present in a listen only mode. Following management’s formal presentation, instructions will be given for the question-and-answer session. As a reminder, this conference is being recorded, November 14, 2024. I would now like to turn this call over to Mr. Marty Cohen, VP, Investor Relations at NICE. Please go ahead.

Thank you, operator. With me on the call today are Barak Eilam, Chief Executive Officer; and Beth Gaspich, Chief Financial Officer. Before we start, I'd like to point out that some of the statements made on this call will constitute forward-looking statements. In accordance with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, please be advised that the company's actual results could differ materially from these forward-looking statements. Additional information regarding the factors that could cause actual results or performance of the company to differ materially is contained in the section entitled Risk Factors in Item 3 of the company's 2023 Annual Report on Form 20-F, as filed with the Securities and Exchange Commission on March 27, 2024. During today's call, we'll present a more detailed discussion of third quarter 2024 results and the company's guidance for the full year 2024. You can find our press release as well as PDFs of our financial results on NICE's Investor Relations Web site. Following our comments, there will be an opportunity for questions. Let me remind you that unless otherwise noted on this call, we will be commenting on our adjusted results of operations, which differ in certain respects from generally accepted accounting principles as reflected mainly in accounting for share based compensation, amortization of acquired intangible assets, acquisition related and other expenses, amortization of discount on debt and loss from extinguishment of debt and tax effect of the non-GAAP adjustments. The differences between the non-GAAP adjusted results and the equivalent GAAP figures are detailed in today's press release. The information and some of our comments discussed on this call may contain forward-looking statements that are subject to risks, uncertainties and assumptions. And I'll now turn the call over to Barak.

Thank you, Marty. And welcome, everyone. We are thrilled to announce yet another excellent quarter where we exceeded the high end of our expectations, beating the upper limits of our guidance on total revenue and earnings per share. This remarkable performance doesn't just highlight our competitive edge, it [indiscernible] propelling us [leaps] ahead of the industry and certifying NICE as the go to partner for enterprises across the globe. Our success speak loud and clear. When businesses want excellence they turn to NICE. We reported total revenue of $690 million in Q3, representing an increase of 15% compared to the same quarter last year with cloud revenue growing 24% to $500 million, exceeding the $2 billion ARR mark, the highest cloud growth on the largest cloud revenue base in our industry. Our scale and superior platform architecture continues to drive outstanding profitability. The number speaks volume. Operating income surged 20% to reach $221 million and operating margin climbed by 140 basis points to a record 32%. This resulted in an impressive 27% leap in EPS over last year's same quarter, hitting $2.88 for Q3. To top it off, we delivered exceptional cash flow, generating $159 million in operating cash, a 32% increase compared to Q3 last year and continuing the year-over-year trend to accelerating cash flow. This strong financial performance is a result of our continued excellent execution, showcasing just how far we are pulling ahead and reshaping the industry landscape. Year-to-date, we have displayed legacy on-prem competitors in over 100 large enterprises. Additionally, over 45 leading brands turned to NICE this year, following failed [indiscernible] deployment by other cloud vendors. Our partner ecosystem is flourishing with over 40 new partners joining our ranks from the beginning of the year, including over 20 international partners, all of which chose to…

Thank you, Barak. I'm proud to report another quarter of excellent financial performance with results in Q3 exceeding the high end of our guidance range for both total revenue and EPS. Our revenue grew 15% year-over-year paired with impressive profitability as our operating margin reached an all-time high of 32%. We've continued to demonstrate our strong ability to unlock operating leverage, while we scale our business, which now exceeds $2 billion in cloud annual recurring revenue. This strength was also demonstrated, once again, by our robust last 12 months free cash flow margin, which exceeded 25% in the quarter. Total revenue was a record $690 million with total revenue growth of 15% in the quarter, comprised of healthy growth, both in the cloud and in our product revenue. Recurring revenue increased to nearly 90% of total revenue compared to 87% last year. Cloud revenue, which now represents 72% of our total revenue compared to 67% last year, increased 24% year-over-year to a record $500 million. Our cloud growth rate continues to outpace our industry even as we operate on a much larger revenue base and scale. Our third quarter cloud growth was driven predominantly by CXone where we are displacing both on-premise legacy vendors as well as other CCaaS vendors. CXone's complete suite and unique ability to consolidate all CX needs of enterprise customers and our one-of-a-kind unified AI platform is driving our sales pipeline and superb win rates. That growth was evidenced in Q3 by the 33% year-over-year increase and the number of our greater than $1 million ARR CXone customers. Further, the attach rate for those customers was 100% in the quarter. Our CXone backlog from signed deals have greatly expanded over the prior year with two main changes in the mix. First, a much larger portion of…

[Operator Instructions] Your first question comes from the line of Tyler Radke from Citi.

Could we just go back to the commentary around the revenue mechanics that you're seeing on cloud? You talked about some slower ramp-up. Was that more customer driven or is it that the revenue recognition dynamics are different in cloud? And then as a follow-up, could you just talk about how that growth should trend in cloud heading into next year?

So with respect to the commentary around cloud, I'll give you a little more color, which is, first, as you know, we delivered our best ever CXone bookings quarter last quarter and we now have the greatest backlog that we've had at record highs of CXone signed deals. As we look in terms of the time line for the revenue recognition, there is no change in the accounting. AI does not change that. However, we are signing more and more seven digit and eight digit ACV deals with large enterprise customers. That, combined with the success we're having of our AI solutions, Copilot, Autopilot, AutoSummary, bring more complexities into those deployments and that is what we're seeing take hold in some of our revenue and changes in our estimates. So what we do know is that those deployments ultimately result in very sticky customers that continue to increase their customer lifetime value with us. But again, it is not any kind of change in the accounting, it's really coming from the strength of the backlog we had but more and more large enterprise customers.

And just to add to that, about your second question, as we mentioned on the remarks, we are seeing acceleration in the cloud growth rate in the fourth quarter. Are you guys giving guidance for next year? You mentioned that. But we see from October billings and activity, both the turnup, as Beth mentioned, as well as the billing overall, a very good sign for the fourth quarter.

Your next question comes from the line of Siti Panigrahi from Mizuho.

Just a follow-up to the earlier question. If you recall, one of the key driver for CCaaS is that 70% still on-prem and will move to cloud. But when you look at your growth and your competitor as well compared to last year, what sort of change are you seeing from customer moving to cloud, on-prem to cloud? Do you see some kind of delay from their side in terms of evaluating AI or anything macro, are you seeing anything of that nature? Any trend would be great.

I wouldn't say there is a change in all of that but I'll go back to what we said already. We are winning the higher end of the market. As we mentioned earlier, year-to-date, we won and displaced more than 100 accounts. So the legacy on-prem provider was the incumbent and we're also starting to see a nice trend of displacing places where the customer already selected a cloud provider that failed to deliver. We've signed more than 45 of those from the beginning of the year. So that's the positive momentum. Yes, it is about moving from legacy to the cloud. But these days, more so than not, it is about the notion of automating customer service. And we're very happy to see that in almost 100% of those deals are not just selling like-for-like, if you would like, just from on-prem to cloud, but other and many of our AI solutions that provide significant acceleration in the footprint and the usage of solutions by our customers in the future.

Your next question comes from the line of Meta Marshall from Morgan Stanley.

I appreciate the commentary just about some of these deals taking kind of longer to get ramped. I guess I would think some of these large deals that would be coming revenue in the second half would have been kind of signed a year ago or so. And so is it that they're kind of going back and making sure that they have all of the AI toolkits and kind of revisiting and adding to what those implementations going to be and that some of the elongation? I guess, I just want to get a sense of are these older deals that are kind of impacting the second half of this year or how we should be thinking about that? And then second, just any commentary on LiveVox, and is it kind of performing as expected for now?

I'll start by talking about the deployments that we highlighted. First, we launched our AI solutions, Copilot and Autopilot, back in Investor Day of 2023. And generally, right out of the gate, we saw great success and Barak just highlighted that we've seen that great success continuing on into this year. So while customers are quite familiar with our traditional CXone platform, when it comes to our AI solutions, they are newer solutions for them. And they are more thoughtful as they consider how AI will be deployed within their organizations. So to your point about the timing of these deals, it really is kind of coming back to both the complexity that we see with the large enterprise deals. And of course, we've had more and more of those from last year coming into 2024 as well inclusive of, as I said, the thoughtful deployment around the newer AI solutions that we offer. If I also comment on the question about LiveVox. So we continue to perform as expected for the LiveVox portion of the business. We are seeing that LiveVox business being more and more integrated into our CXone platform, our go-to-market across the board.

Your next question comes from the line of Rishi Jaluria from RBC Capital Markets.

And Barak, it's been a pleasure working with you, and we look forward to seeing the next chapter in your career. Maybe just two quick ones from me. I want to continue thinking about kind of the ramps on the cloud side. Maybe can you be explicit in terms of how has that ramp over time changed in terms of the lag from booking to when deals go live? And is that purely just a function of closing large deals and maybe they're more complex and that's why they're taking longer to ramp into live production or is there something else? And maybe related to that, if we take a step back and we think about the Analyst Day where you kind of laid out the long term model and talking about getting to 80% cloud penetration over the next several years. Maybe can you walk us through from your perspective as these deals start to ramp up what's the kind of right organic cloud growth rate that you'd be happy with in terms of kind of going towards those long term targets?

Let me start by saying that it's -- I don't want to repeat on what we have said already. But generally, we have numerous motions in our business. Obviously, there is the more midsized customers that we've always been signing, that doesn't change. We have great opportunity and we're seeing it already where those customers and new ones easily adding a variety of capabilities because of the flexibility of CXone. AutoSummary was a great example of that. But as we go into the more interesting part of the market and we need more and more large customers on our end from the technology side the platform is ready to onboard those customers in day one. But the market of customer service automation is not -- it’s not just about the move from on-prem to cloud, that's the easy part, if you would like. It is about, as I said before, reengineering workflows, taking out agents from the workflows and embedding AI instead. So that’s from customers take a bit longer. But when it happens, it happens in a massive scale and it's going to be there forever, because it's going to replace people with our technology that had tremendous value. So it's a revenue that has much higher profitability and much higher customer -- lifetime customer value. We see, as Beth said before, a significant backlog that we have for CXone. With that change of mix, it gives us optimism about the future. And as we mentioned before, in Q4, given what we've seen in October already, we are estimating acceleration in the cloud growth.

Your next question comes from the line of Jim Fish from Piper Sandler.

I do want to hit on that last point, Barak, that you just made. I mean you guys acquired Playvox earlier in the quarter. I think it looks like $45 million of cash outflow here for it. Our math kind of points to about $20 million of contribution. So first, can you talk about what Playvox gives you strategically when it closed and what we're supposed to be expecting in terms of contribution kind of moving forward?

I'll take that and then allow Barak to add any further commentary. I think, first of all, it's important to highlight that the Playvox was a technology tuck-in acquisition with a purchase price around $40 million. We also saw some published articles that considerably exaggerated the revenue related to those deals and again, highlighted it immaterial in terms of revenue contribution in our Q3 results.

Our next question comes from the line of Samad Samana from Jefferies.

This is Billy Fitzsimmons on for Samad. Barak, we wish you best of luck in your future endeavors. And in terms of the question, Barak since NICE last reported several larger software vendors have introduced a [gen tech] or autonomous AI solution. How do you see NICE’s market position evolving as these companies that you partner with offer computing solutions?

As I mentioned before, I think we are -- although it's been two years since the launch, if you would like, of generative AI, the adoption cycle of enterprises like many other technological sites, is much slower than our own adoption as individuals. So I think we'll over the hype into reality. And there is understanding that taking something generic doesn't work for enterprises. It might adds you the ability to get further access to knowledge bases and others but to make it functional, takes something else. We're talking about something called functional AI and that's what happens when you take the right knowledge with the agents and workflow and connect it to all the back end processes and back end system of customer service. We have something, as I said before, that is critical and unparalleled when it comes to customer service automation. We have at any given time, [real] time access to the customer intents. And without a real time access to the customer intent, you can't really automate customer service. We have it in real time and we have the historical tens of billions of interaction with customer intent, that allows us to provide not just a functional AI but also one that works at scale and precision. So we're seeing a lot of those enterprises. After two years of trying something generic or small point solutions coming to us is understand that in order to broaden it and to really think at customer service automation at scale and not just for a specific small use case to take a much more strategic approach and this is exactly what we see in our bookings. And the examples I gave in my earlier remarks were just a few of the many that we are seeing.

Your next question comes from the line of Arjun Bhatia from William Blair.

Giong back to the -- some of the long implementation times, I was hoping you could just maybe touch a little bit on how much longer we should expect some of these deals to take? Are we talking months, are we talking quarters, given the increased complexity? And then Barak would love to hear what about the CCaaS displacements that you're seeing. What is the main driver of those? I fully understand, I think, the on-prem wins. But what's driving NICE to win over other CCaaS lenders that have already kind of gotten a foot in the door with some of your customers?

So as we mentioned before, it's the largest backlog but it has a change of mix. It really depends, in many cases, on the customer. We are also working very closely with our partners to be able to drive this adoption by customers. I can't really quantify it right now. But the beauty that as soon as it's up and running, we'll increase in both adoption, building and eventually, as I said before, the lifetime value, the length of this customer, the time that they're going to stay with us is as long as it's extremely sticky solution. About the wins, as I mentioned before, we see an acceleration in the win over legacy provider, the on-prem providers like the Cisco, Avaya, Genesys, all of those legacy providers. But we're seeing -- and maybe that's something you can easily see from the Gartner Magic Quadrant, we see that customers who signed up, especially customer scale sign up with a cloud provider and already moved kind of to the cloud coming a year or two after to us and move from their cloud providers to CXone. I gave you example. We have many more of those in the backlog. And our ecosystem of partner actually help us with that. Many of those partners that work with those cloud providers turn to us because eventually, it's their reputation, their brand when it comes to the customer success.

Your next question comes from the line of Timothy Horan from Oppenheimer.

So do you think the cloud acceleration can continue into next year? And the cloud gross margin ticked down a bit. Can you just talk about the trends there? And then just on this point on the workflow kind of reengineering by enterprises. Do you think you have a good handle on that now or are you at a stage where you can implement it relatively quickly?

Tim, I'll take the first half, and then hand it over to Barak. And as we highlighted earlier today with respect to cloud growth we're not commenting yet on 2025. Of course, we will provide an update on expectations as we provide our fourth quarter results. But again, we'll just say again, we are expecting acceleration of our cloud revenue growth in the fourth quarter. And we've already completed the month of October so we can see statistics of our customers, we can see that the seasonality kicking in, particularly in some of our retail customers. Now it looks like it's going to be a nice season there and that will help drive the seasonality and growth along with the healthy turnups, which happened in the first month as well. You also had asked about our cloud gross margins. And one of the things I highlighted earlier today was that we had really great growth in EMEA this quarter, 14%, that was underscored by our cloud growth. And it's really evidencing some initial very early positive signs that we're seeing great cloud traction internationally. But we have made some significant investments outside of the Americas, both in the EMEA and APAC region, and that's what you're seeing is a bit of pressure on fixed cost in those regions associated with the cloud. But of course, as you know, cloud revenue is recognized over time. So we're going to see -- continue to see great economies of scale as we continue to deliver on the backlog and the pipeline that we're seeing in those regions. And then I'll hand it over to Barak for the rest of the question.

Yes, appreciate the question on the workflows, and I think that's key for the future of customer service automation, that's the reason we are spending so much time on that and I've tried to give a bit more color on that. The desire to automate customer service is not new. It exists for the last 30 years with very true results if you think about it. And there have been a few waves in the last few years of hopes to different technologies. If you remember the days of RPA, that was supposed to bring automation, we can make parallel between RPA and almost like prescriptive or predictive analytics. But it's basically delivered automation at a task level, which is definitely not enough to drive for automation. And then the early days of gen AI augmented roles, specific roles in customer service but didn't touch the full workflow and we didn't deliver the right gains or a full automation. We believe from what we're seeing that only functional AI with a system, a platform that oversees all customer service workflows, including all different roles, all different functions is what will eventually deliver full customer service automation. And that's why we have launched CXone Mpower, it's the evolution of CXone. We have all the knowledge. We have all the agents. And now we have all workflows in order to design, build and of course, automate and operate all of those workflows moving forward. Any other tactical efforts to automate customer service we believe will result in what we've seen in the past 22 years, which is very small local automation versus what enterprises really want and need.

Your next question comes from the line of Patrick Walravens from Citizens JMP.

And Barak, we're going to miss you. I think one place where there's some investor confusion and I'd love to hear your perspective on it, is who has the right to win when it comes to AI SKUs like AutoSummary knowledge management? So if a big bank, for example, is using the Salesforce Service Cloud and they're not using NICE CXone, who has the right to win those AI SKUs and why?

And we, as I mentioned before, find ourselves in many conversations with customers who are asking themselves the exact same question, who should automate my customer service? Should it come from NICE or should it come from a generic big tech or should it come from my CRM? And after they try a variety of angle, they understand what I mentioned before, A, you need the domain expertise. We understand customer service inside out. Actually through our partnership with one of those big tech, we realized that the go-to-market team cannot talk or even they don't understand what customer service is all about. When it comes to the -- us versus the CRM, obviously, there is a room for CRM and customer service as a system of record. But when it comes to full automation, as I mentioned before, you can't automate something unless you have the customer intent. The analogy I'd like to give to that, Google is the best advertising platform in the world because they know what is the consumer desire and intent at any given time given what they're writing in their search. The customer intent only really exist in real time in the interaction itself. We are an interaction centric platform. Hence, we were the only one that really have the ability to automate workflow end-to-end. And more and more customers understand that. We coexist with the CRM in those environments but we see more and more of those assets from digital engagement in AI coming to the CXone direction instead of other either point solutions or the system of transactional record, which is the CRM.

Your next question comes from the line of Michael Funk from Bank of America.

I guess the first one is actually more of a request than a question, part question, part request. I guess your comments on the backlog, record levels of backlog I also understand longer deployment times for the large enterprise and AI solutions. I think that what the bears are picking at though is the appearance that the organic cloud revenue growth is lower and no certainty around acceleration of that. What would be helpful, I think, is if you could provide some commentary maybe today or in the future about the go-live time and expectations for that backlog? So we can actually bake that into our estimates in the future, that would be very helpful. More details around that. The question from me is what competitive environment and are you seeing any changes in win rates, execution, pricing pressure in the competitive environment? And if so, where regionally or is that upmarket or downmarket?

We are -- first of all, about the first one, we took a note and we'll, of course, consider it moving forward. So I appreciate the advice. On the second one, on the win rates, we feel that our win rate has been accelerating and growing in the last 18 months. We feel that when it comes to the large enterprises, some of the other players that wanted to go into this market aren't able to scale. We feel that some of our competitors are strategizing or taking short term decisions because of certain financial structure or certain desired exit of the company. And we feel that some of the big tech that wanted to get into this market and made big noise just six months ago, we haven't seen anything in the field. So we feel our win rate is going well and accelerating and we are optimistic to continue in this market. And we are very happy to see that Gartner thinks the same with their recent MQ.

And Mike, I do want to just quickly kind of address the comments you made about the request, because first of all, I just want to state again that one of the things we had in the quarter is we saw a 33% year-over-year in the increase of the number of 1 million plus ARR CXone customers. And again, it just highlights the large number of enterprise customers that we're winning and that we're seeing in the backlog. When we think about the timing, it's important to say that technically with CXone in our platform we have the ability to deploy our solution in a matter of days, and we have plenty of instances where we've shown that we have the capability to do that. But as Barak highlighted earlier, especially as you're starting to consider about large organizations rethinking about how AI and how our Copilot and Autopilot will actually reenvision kind of seamless process workflow, it's a much more thoughtful deployment. And so that's why we don't give specific the deployment time, because we have customers, we continue to operate in all segments of the market that are deploying very, very quickly. But as we go into the large enterprise with customers that are buying a great amount of capabilities, it can take upwards six, nine, even 12 months as they're deploying some of the AI based solution. So that's just to give you a bit more color. It is something we've kind of shared a bit in the past and just to give you a sense of what to expect in terms of timing.

Your next question comes from the line of Catherine Trebnick from Rosenblatt.

And one of my questions is, of the new logos what would be the attachment rate for 1CX? Because you launched that product, I believe, last March, April, May time frame. It was announced but came in on the market before the Investor Day. And what types of trends are you seeing with the UC and CC attachment is really the question in the large enterprise?

We launched 1CX, which is our UCaaS solution, full fledge UCaaS solution for 5 bucks per channel earlier in the year. We see tremendous traction and many deals are signing. Obviously, it's more applicable for the lower end of the market. I think that UCaaS at the higher end of the market is boring and obsolete, because it's being displaced by -- basically by teams and completely separate from the CCaaS and the contact center solution, and there is no real need for future UCaaS in the higher end of the market. But for our customers, at any size we make it available we see the demand mainly on the lower end of the market and we're very happy with the traction that we get.

Next question comes from the line of Chris Reimer from Barclays.

I was wondering if you could comment on the traction -- well, the small uptick this quarter in the product. And what do you think is driving that -- the stickiness there, what kind of customers are on the product segment of the solutions?

I think that if you look on our growth, you'll see that quarter-after-quarter, our overall revenue growth is being driven by the cloud. This quarter, we had a nice year-over-year growth in product as well. And what you see is, from time-to-time there are generally a select and a lesser and lesser number of large enterprise customers just haven't yet figured out exactly their roadmap to the cloud. It often occurs with organizations which are -- where cloud has not yet penetrated much of the market, they're in very early stages. So generally, you'll see that tend to be more outside of the Americas. Also, we tend to see that from time-to-time in our FCC or Actimize business, where cloud is still more in the early days. And so you will have those customers as you saw this quarter elect to purchase our premise based solutions.

And your final question comes from the line of Michael Latimore from Northland Securities.

When you talked about cloud accelerating in the fourth quarter, are you referring to a sequential change there or an improvement in the year-over-year growth rate? And if you see year-over-year growth rate, do you expect it to be kind of above or below the guidance you've given for the year?

So with respect to the fourth quarter, we do expect the year-over-year growth rate in Q4 to exceed the year-over-year growth rate in Q3. In addition, we expect the sequential contribution in cloud to exceed going from quarter-to-quarter this year relative to what we experienced one year ago. So what it means for the fourth quarter or for the full year, again, you can do the math, but it is showing that the expectation for Q4 is an acceleration increase. And as we've highlighted a few times on the call, we have our usage coming out of October, which gives us some nice confidence as we head into the end of the year.

And that concludes our question-and-answer session. I will now turn the call back over to Barak Eilam, CEO, for closing remarks.

Thank you all for joining us today. And once again, thank you for the many years of partnership and we will continue to drive the business to the end of the year and handing over the company to Scott with a great team over here and NICE will continue to thrive. Thank you very much.

This concludes today's conference call. Thank you for your participation. You may now disconnect.